Ethical coffee company founder has signed one of the biggest private equity deals in B.C. this year

Elana Rosenfeld, CEO of Kicking Horse Coffee, at her company's headquarters in November 2012.

Photograph by: Pat Morrow
, Special to The Sun

VANCOUVER — When Elana Rosenfeld of tiny Invermere sold a chunk of her ethical coffee company this September, she signed one of the biggest private equity deals in B.C. this year.

The Kicking Horse Coffee Company deal was large enough for Rosenfeld to be named one of three Vancouver dealmakers of the year by the Association for Corporate Growth, an international, non-profit mergers and acquisitions organization. She will receive the award tonight.

The sale attracted almost a dozen offers for the business and ultimately set an industry beating valuation, ACG Vancouver president Robert Napoli said. Typically, a firm trades for five to six times earnings. “This was way over the benchmark,” said Napoli, who is also vice-president of First West Capital. ACG received a record eight nominations this year, Napoli said, and the deals “were pretty well all north of $100 million transactions.

While the Kicking Horse deal was under $100 million, Napoli said, “for me, this was the best one.”

Rosenfeld and partner Leo Johnson started Kicking Horse in their garage in 1996. “We lived in a small town in B.C. and had to figure out how to make a meaningful living,” Rosenfeld said. “We were young and naive. I was 27. Leo was probably 28.” She had a degree in religious studies with a minor in women’s studies. He’d taken sociology and anthropology. They lived in a cabin with no electricity or running water.

By the time they sold Kicking Horse this fall (Johnson sold his interest and Rosenfeld sold some of hers), AC Nielsen ranked Kicking Horse among the top 10 commercial brands in Canada along with Folgers, Nabob and Tim Hortons. The company was selling two million pounds of coffee a year, was stocked in every major grocery store across the country from Loblaws to Overwaitea, Thrifty Foods, Sobeys, Shoppers Drug Mart and London Drugs, and was starting to make inroads into the U.S.

The way Rosenfeld tells it, Kicking Horse’s growth is a tale of good timing, strong branding, naiveté and focus.

In Invermere, Rosenfeld waitressed and Johnson cooked while they considered their future. Rosenfeld had a settlement from a childhood car accident, so after buying some land and building a 20-foot by 26-foot cabin with the help of friends, the couple decided to buy a local café. The local banker agreed to a mortgage, and the café owner’s accountant lent them $50,000.

A year later, they sold the café at a small profit, travelled for a year, then returned to the same kindly banker for $75,000 to start a coffee company. “It was the same house, but a little further along. It had electricity by now,” Rosenfeld said.

Customer reaction to Kicking Horse Coffee was good from the start. “Starbucks had certainly paved the way for us,” Rosenfeld said. “We discovered there was no good coffee in the grocery stores and we thought, that’s going to be our area of focus.” Kicking Horse became the first in Canada with whole bean, organic, fair trade coffee.

The partners chose a quirky, fun and approachable feel for their brand. “We didn’t want to pretend we were Italian,” Rosenfeld said. “We didn’t want people to have to know where Nicaragua was, or Guatemala.” They sold blends with names like Kick Ass, Hoodoo Jo, Kootenay Crossing and Grizzly Claw based on places and themes near their home.

Thrifty Foods agreed to stock them within their first year. In their second year, they discovered the Business Development Bank, which gave them a young entrepreneur award and over time, five loans. Their garage gave way to a 60,000 sq. ft. facility built over four cautious phases. The company now employs 43.

Early on, Johnson focused on roasting, design and operations, while Rosenfeld targeted sales, marketing and finance. She was financially conservative and scrupulously ethical. “I never had a line or credit and never held money back. You know how some companies play games with their payables? I always paid on time to smaller locals.”

While competitors have size on their side, Kicking Horse priced their coffee as a premium product with good margins and counted on building a loyal, engaged following. “I just want to make this much money on each pound of coffee and that’s kind of what I stuck to all the way through,” said Rosenfeld, whose mom Carol Rosenfeld co-founded Toronto’s Sable and Rosenfeld gourmet food producers. Her dad was a founder of Guardian Capital.

“I remember my mom telling me that Estee Lauder told her ‘Always give samples,’ ” Rosenfeld said. And Rosenfeld did. She sponsored running, biking and other events. “The impact was huge,” she said. “Give them a bag or a can of coffee. It can be cheaper than advertising or more expensive, but it’s tactile. It’s product in hand.”

Nonetheless, Rosenfeld believes naiveté helped her forge ahead. “I never really paid attention to what competition was doing. We just focused on what we were doing. What if they are going to a smaller package or raising their price or lowering the price? You just keep make sure your relationship with the buyers and stores are strong.”

“We’re the underdog in the coffee world. We provided what we said we were going to provide. It’s just a lot of good will.”

Of course, it was not always smooth sailing. A tea line bombed. “We were just not focusing ... We didn’t brand it properly,” Rosenfeld said. Tea is an easy entry business — “you just bring it in and repackage it“ — whereas coffee roasting is a science and an art, so “there’s a lot of really good branded competition in tea.”

Another near disaster was a deal to give the Calgary Herald 90,000 samples of coffee for Christmas. Kicking Horse ordered the necessary packaging equipment after signing the deal. The equipment failed and they delivered a month late. “It was a great promotion but we didn’t meet the customer’s deadline,” she said.

The partners steered away from franchise offers, private label and many other distractions. “You can’t do everything and you can’t be swayed by other people’s deals and wishes and directions,” Rosenfeld said. And they were careful to retain life balance. “I think you need that space in your life to be creative and to make good decisions,” she said. “If you’re just running on the treadmill, you’re not going to see the wider pictures because you’re always focused in. We travelled a lot and took a lot of time off.”

When Rosenfeld and Johnson decided to part ways two years ago, they engaged David Lam, a Deloitte partner in mid-market corporate finance, to find a buyer. Lam was able to attract almost a dozen international players. The company’s strong brand recognition in the market was key, Lam said. Kicking Horse not only had high growth and strong profits, its sustainable focus resonated with consumers.

The ultimate buyer, Branch Brook Holdings, is a partnership between Swander Pace Capital, Jefferson Capital Partners and United National Foods that invests in North American organic and natural consumer product companies. Other Swander Pace holdings include Liberté yogurt, Genisoy and Pineridge Bakery. Rosenfeld remains a Kicking Horse shareholder and CEO.

Swander brings broad access to the U.S. market, but Kicking Horse will proceed cautiously, Rosenfeld said. Going into Walmart and other giant chains won’t work, Rosenfeld said. “Our brand is not mature enough.” Instead, she’ll seek slow, organic growth through smaller chains. Large supermarkets offer too much choice and are “not as intimate an environment. I don’t think consumers get as engaged,” she said. She will also steer away from traditional advertising, which she said is better suited to mature brands and will continue the way she started, sponsoring targeted events such as the Banff Mountain Film Festival where she typically hands out 90,000 samples.

“You have to be careful going to the States because you can drop millions and millions in advertising and walk out with nothing. That does happen to Canadian companies,” she said. Two months after the Branch Brook deal, Kicking Horse coffee is already in 400 U.S. independents and small chain stores.

Kicking Horse is the latest of several homegrown B.C. food and beverage companies to attract significant international investment, Deloitte’s Lam said. Although locals players compete with industry giants in a traditionally low-margin industry, homegrown competitors such as Vega/Sequel Naturals, Gardein International, Lesley Stowe Fine Foods, Kicking Horse Coffee and Nature’s Path have taken advantage of their nimble size in the face of fragmenting consumer taste, Lam said. As a culturally diverse region, B.C. is also an ideal testing ground for new products and innovation, he said.

“It was a great year in mergers and acquisitions in B.C.” said Napoli of ACG. “We’ve got a strong economy, low interest rates, there’s more sellers because of the baby boomers retiring (although this was not the case for Kicking Horse), and lot of interest from buyers — particularly private equity in America.”

Canadian companies are attractive to U.S. investors because they tend to come in at a lower valuation than the U.S., Napoli said. “I think we’re going to see more of this.”

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